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Simulation, psychology and ISVs in financial trading

Interesting blog article on the use of simulation in training financial traders by Dr Brett Steenbarger, a psychologist who is also a trader and is writing a book on trader performance.

He says: “The simulator works from compressed historical data, so its possible to select any previous day of the year and replay it for practice. The simulator can be set for normal or accelerated speeds–most recently Ive been practice trading at double speed–and it can be paused, rewound, and fast forwarded. The pause feature is especially helpful: whenever I made a poor decision, I could pause the simulation and more closely investigate where I went wrong. After simulating at double speed, normal markets seem slow. This works to my favor: it feels as though I have lots of time…”

He adds: “I am convinced that a tightly designed trading curriculum utilizing intensive simulation and real time practice can significantly accelerate ones expertise development. Once I finish my book, I will become my own guinea pig and test that notion out.”

The simulation package he uses is NeoTicker. This is produced by TickQuest, a privately held company based in Toronto, Canada, established in June 2000. (Why are there so many Canadian simulation companies?). Their press release archive is an interesting overview of the growth of an ISV in a niche market, as they move from version 1.1 of their initial product, releasing upgrades virtually every two weeks, gradually increasing the price, and so on. Th website is not very informative about the company itself, but includes a link to an interview with Lawrence Chan, one of its founders, who started as an independent stock option trader on floor of the Toronto Stock Exchange, but decided that: “most trading platform interfaces seem to follow the developers logic. But that logic isnt always intuitive to traders”. In another interview he says “In order to make NeoTicker behave exactly like it runs in real-time, weve created a server application called SimServer that works and feels like any other real-time data feeds server programs, except that it feeds NeoTicker with real tick-by-tick, including bid and ask, historical data…. it is first time any trading software ever attempted to implement such a complex task… No matter you just discovered a new trading setup, or, you have learned one from a peer trader or mentor, you can easily walk-thru many days of data and collect statistics of the performance by using SimServer in combination with Trade Simulator…. Performance viewer lets you view details of all the positions taken, summary statistics on how you perform, and, if you like, export the information to Excel to apply your own custom analysis. …. To just watch the day to play out in front of your eye at 10 times the normal speed, you can effectively learn the complete price action of the day within 45-50 minutes… Thus, even if you take a day or 2 off your trading, you can still warm up yourself with the past 2 days of data before jumping back into trading…. If you are a beginner learning to trade, you will find that the ability to work with historical data to train yourself first will save you both money and time… Best yet, you can keep your day job until you have reached a point with better confidence before actually trading real money, in real-time.”

Dr Steenbarger also mentions MarketDelta. Both are for highly technical day by day financial market trading, chartism, etc.

His blog also goes into what makes good performance, in any field. Hes looked at the training methods used by sports coaches and military special forces, and read widely. I like his comment that: “We tend to believe that competence is derived from learning skills and gaining information. The research suggests that it is the immersion in a performance field that yields deep and continued learning. Mere interest or desire for success is not sufficient to sustain this immersion. If there is not a deep emotional bond between performer and performance field, competence is not likely to blossom into expertise.”

Dr Steenbarger is Clinical Associate Professor of Psychiatry and Behavioral Sciences at SUNY Upstate Medical University in Syracuse, NY, as well as Director of Trader Development for Kingstree Trading, LLC in Chicago, which is listed as an inactive trading member of the Chicago Mercantile Exchange CME). It doesnt seem to have a website.

Apparently this is a contentious area: Kingstree was recently involved in patent infringement litigation with an independent software vendor (ISV). Scarcely surprising: trading is an ideal area to simulate (lots of numerical data to munge) and theres potentially a lot of money in it.

Dr Steenbargers book should be worth reading: he seems to take the view that its ultimately the man (or of course woman) behind the simulation package that matters: the best package in the world will not create a first class trader if the enthusiasm and motivation are not there.